19 Aug 2015

1). The DeBeers company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, the price of diamonds will:

Exceed the marginal cost of diamonds but equal to the average total cost of diamonds.

Exceed both the marginal cost and the average total cost of diamonds.

Be equal to the marginal cost of diamonds.

Be equal to the average total cost of diamonds.

2). Using 100 workers and 10 machines, a firm can produce 10,000 units of output; using 250 workers and 25 machines, the firm produces 21,000 units of output. These facts are best explained by:

8). Other things held constant in a competitive labor market, if workers negotiate a contract in which the employer agrees to pay an hourly of $17.85 while the market equilibrium hour rate is $16.50, the:

Quantity of workers demanded will exceed the quantity of workers supplied.

Quantity of workers supplied will exceed the quantity of workers demanded.

Supply of labor will decrease until the equilibrium wage rate is $17.85.

Demand for labor will increase until the equilibrium wage rate is $17.85.

13). In 1997, the federal government reinstated a 10 percent excise tax on airline tickets. The industry tried to pass on the full 10 percent ticket tax to consumers but was able to boost fares by only 4 percent. From this you can conclude that the:

Supply of airline tickets is perfectly inelastic.

Supply elasticity of airline tickets is less than infinity.

Demand elasticity for airline tickets is greater than zero in absolute value.

Demand for airline tickets is perfectly inelastic.

14). In 2011, the Department of Justice sued AT&T to block its merger with the cell phone service provider T-Mobile. To defend itself against the charge, AT&T argued that the:

Combined company could raise prices, allowing it to survive in a rapidly changing market.

Government had no authority to block mergers in the telephone industry.

15). The law of diminishing marginal productivity implies that the marginal product of a variable input:

Never declines

Always declines

Is constant

Eventually declines

16). Suppose OPEC announces it will increase production. Using supply and demand analysis to predict the effect of increased production on equilibrium price and quantity, the first step is to show the:

18). Suppose people freely choose to spend 40 percent of their income on health care, but then the government decides to tax 40 percent of that person’s income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

There is no difference because the total spending remains the same and the health care purchased remains the same.

Taxing income results in less deadweight loss because government knows better what health care coverage is good for society.

Taxing income results in deadweight loss, and purchasing health care on one’s own doesn’t result in deadweight loss.

There is no difference between goods that are purchased in the market in either case.

19). At one time, sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 each. Based on these numbers, the production of fake killer whales exhibits:

Diminishing marginal product

Decreasing returns to scale

Constant returns to scale

Increasing returns to scale

20). There are many restaurants in the city of Raleigh, each one offering food and services that differ from those of its competitors. There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day. The restaurant industry in Raleigh is best characterized as:

23). When Ross Perot ran for president as a third party candidate in 1992, he argued that free trade with Mexico would result in massive job losses in the United States because Mexican wages were so low. Which of the following is the best explanation of why few economists agreed with Perot?

Although economics predicted that unemployment would rise, the increased profits of corporations would raise stock prices enough to compensate for the lost jobs.

Economists did not believe any jobs would be lost in the United States.

Although economists believed that in some areas the United States would lose jobs, they expected the United States would gain jobs in other areas.

Economics believed that the U.S. unemployment would rise.

24). Mr. Woodward’s cabinet shop is experiencing rapid growth in sales. As sales have increased, Mr. Woodward has found it necessary to hire more workers. However, he has observed that doubling the number of workers has less than doubled his output. What is the likely explanation?

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